Can Bankruptcy Get Rid of Divorce Debt from a Hold Harmless Clause?

Posted on Jan 12, 2011 12:28am PST

What happens when you agree to pay the debt of your ex-wife or ex-husband as part of your divorce decree? What if you can't pay the debt and you want to file for bankruptcy. Can you get rid of the debt as part of the bankruptcy? The answer depends on what type of bankruptcy you are filing.

As part of your divorce you may have agreed to cover your ex-wife or ex-husband's credit card debt, medical bills or personal loans. If you agreed to include this as part of your divorce decree then your agreement probably has a hold harmless clause. When you agree to hold your ex-spouse harmless you are agreeing to protect them from their possible liability for these debts. What does this mean for you? It means that if you fail to pay the debts that were assigned to you and the creditor comes after your ex-spouse, they can go to court to enforce the divorce decree. In a nutshell they can go to court to get a contempt order and enforce the divorce decree and what you agreed to.

What if you can't afford to pay these debts and need to file for bankruptcy? Chapter 7 bankruptcy will allow you to discharge your personal liability to the creditor but it will not discharge the hold harmless clause. Chapter 7 will not help you get rid of the hold harmless clause because debts incurred as part of a divorce or separation agreement are considered non-dischargeable. This means that the creditor cannot seek to collect the debt after your discharge, but your ex-spouse can still seek to enforce the hold harmless clause. The divorce decree in this case trumps bankruptcy. A good example of this situation would be:

Molly and David decide to get a divorce. Molly and David have credit card debt and medical bills. Each has debts that are solely in their name and debts that are in both their names. David agrees as part of the divorce decree to pay the debts in his name and the debts that are listed in both their names. The divorce decree states that David will pay his credit cards and the debts that are under both their names. The agreement states that it will hold Molly harmless for these debts. Later, David realizes he cannot pay the debts and files for Chapter 7 bankruptcy. David received a discharge in a Chapter 7 bankruptcy. David and Molly's creditors cannot come after David for these debts, but Molly's creditors (for debts she was listed on) can still seek to collect the debt against Molly. Molly may decide to enforce the hold harmless clause if one of these creditors comes after her.

Chapter 13 bankruptcy on the other hand can eliminate your liability for a hold harmless clause in a divorce or separation agreement. A Chapter 13 bankruptcy should be considered where it is likely the creditor will seek collection against your ex-spouse and your ex-spouse is not planning to file for bankruptcy. Through a Chapter 13 bankruptcy you can eliminate your personal liability from the creditor and from the hold harmless clause.

Comments

Ernest this would depend on whether you were listed as responsible party on that debt. The fact that your wife filed bankruptcy on the dental bill would not remove your liability if you were also listed as a responsible party on the debt. I am not sure from your facts how this debt was incurred and whether you were listed as a responsible party on the debt.

Posted By: Norma Duenas | Dec 5, 2012 7:55pm PST

My ex-wife filed bankruptcy (chapter 7) in '09, since then we are now divorced . A creditor is now coming after me for a dental bill that she filed on her bankruptcy. am I resposible for that debt ?

Posted By: Ernest | Nov 18, 2012 7:47pm PST

Diane, unfortunately the bankruptcy code allows certain discharge of debts regardless of how it adversely affects another parties credit score. If you feel that the debt as assigned to him was in lieu of child support or alimony then you may have a basis to dispute the discharge of the debt in a Chapter 13 bankruptcy. A debt that is the nature of "alimony, maintenance, and support" will not be discharged in a Chapter 13 bankruptcy.

Posted By: Norma Duenas | Oct 2, 2012 12:49am PDT

The hold harmless clause will not automatically stop creditors from coming after you or remove your personal liability. The hold harmless clause operates to allow you repayment for the debt from your ex spouse if you were required to pay the mortgage debt by the creditor. In order to get your ex husband to abide by the agreement you may need to go back to family court. From the creditors side you are still liable on the mortgage.

Posted By: Norma Duenas | Sep 30, 2012 9:40pm PDT

So if your ex-husband was ordered by the court to pay the joint credit cards and hold me harmless, he can file Chapter 13 and wipe out the debt and the hold harmless. Meaning, I have to pay off the debt myself or also file bakruptcy?? So how am I held harmess?? Now my credit is ruined...

Posted By: Diane | Sep 19, 2012 8:26am PDT

My divorce was final in April of 2010, my ex got the house in the divorce and was to remove my name from the loan. He didn't do that and in return let the house foreclose! It was a USDA loan they proceeded and kept my tax refund this year due to the foreclosure. He got his taxes! I am taking him to court for contempt but now he is filing bankruptcy so I'm not sure what to do now? I have already filed because there were other things he didn't pay also! It is very humiliating for me I work at a bank and care about my credit!! Not sure if I should keep fighting for what is right or not? I don't have money for an attorney I am a single mom with 2 kids! Of course he has hired an attorney! Help

Posted By: Corrinne | Sep 18, 2012 11:34am PDT

After my divorce I filed a chapter 13 bankruptcy listed with the creditors was a personal line of credit. This creditor did not make a claim for repayment, but instead chose to seek repayment from my ex-wife who is currently making payments against this loan. I have already been discharged from my chapter 13; my question is can a creditor claim a complete charge off against me when they are receiving payment from my ex?

Posted By: Ken | Aug 20, 2012 5:39am PDT

I am divorced and have given my ex our home in Maryland. The court gave him 12 months to refinance and get my name off of the house. This was just two short months ago and he has not refinanced. He has not paid one payment since I handed it over. There is a hold harmless agreement in the contract he signed when we divorced, will this stop the morgage companies from coming after me if they foreclose on the house? He makes a six figure salary and had no problems paying me a large amount of money each month for child support and alimony so I know he has the money to pay it, he just wants to force me into bankruptcy.. As soon as I waived the child support he stopped paying me the alimony he agreed to pay. I am out of money for attorney's to fight him. My kids and I have moved in with my parents.. The only thing I have left is the vehicle I drive, which is paid off, and some things that were in our home. If they are able to come after me, will they take that too? I am trying to figure out if I should file for bankruptcy or wait and see what happens. I have no debt.

Posted By: Heather Heimer | Aug 9, 2012 6:21am PDT

If you both were to file for bankruptcy then the mortgage company could not go after either one of you regardless of you assigning the debts as part of the divorce. Even if the hold harmless agreement is not discharged the issue really becomes mute because no party is going to seek to enforce this hold harmless clause in court. In the situation where both file for bankruptcy the creditors would not be able to go after either one of you, therefore neither you or your ex spouse would seek to enforce the hold harmless clause or the division of debts in the divorce. If you have a divorce decree that agrees to someone taking over a debt and agreeing the hold the other party harmless the issue becomes mute if you both file for bankruptcy.

Posted By: Norma Duenas | Apr 15, 2012 11:26am PDT

I am going through a divorce, I am in the process of filing out the divorce papers. My house is in foreclosure, but I am trying to save it. My husband signed a Quitclaims deed (required by the mortgage co). If I can get my payments reduced on the 1st mortgage, I will pay. Husband agrees to pay 2nd. If I or he can not pay the morgtages and the divorce is finalized, can we file bankruptcy seperatly even if the divorce states I pay for 1st and he pays for 2nd? Does the 11 United States Code Section 523 (a) apply here? Or can some type of wording be put in divorce about the foreclosure?

Posted By: Lisa | Mar 31, 2012 2:16pm PDT

Although he was held responsible for paying the debt as part of court order, the personal liability from the creditor's eyes is in your name since you incurred it on your credit card or as a medical expense in your name. You can discharge this debt in a bankruptcy even though the debt was assigned to him. You can remove your personal liability for these debts, because in this case the debt was not a debt that was assigned to you as part of a court order in a divorce or custody agreement.

Posted By: Norma Duenas | Jan 28, 2012 11:54pm PST

My ex-husband is court ordered to pay 1/2 of a car loan we jointly held, plus 1/2 of the children's medical expenses and all of the medical expenses for when he is not providing insurance. However, all of this debt is in my name and on my credit report (as I am the one that takes the children to the doctor). He fled the country and is refusing to pay any of this off. Can I file bankruptcy to include this debt?

Posted By: Melissa | Jan 28, 2012 3:20pm PST

The debt assigned to a spouse as part of a divorce that agrees to hold the other party harmless are usually considered property settlement agreements that you can eliminate in Chapter 13 bankruptcy. Whether the debt you have indicated will be eliminated will really depend on how this agreement in the divorce is considered. You can try to fight the issue in the bankruptcy case and if you can establish that the responsibility is more in the nature of support, maintenance or alimony then the debt will not be discharged in the Chapter 13 bankruptcy.

Posted By: Norma Duenas | Jan 27, 2012 11:39pm PST

I have a Marital Separation Agreement as part of the Order of Judgement for my divorce. In the agreement, my ex-wife is responsible for half of a personal loan from my mother to the tune of 105k (her portion). She has now filed Chapter 13 and I am getting ready to attend the meeting of the creditors. My question is will she actually be able to avoid paying me via discharge? Or does the divorce decree trump the BK? If this is something that can be discharged, is it automatic that the court will? Do I have any recourse? Can I sue? Please help.

Posted By: Kevin | Jan 25, 2012 3:16pm PST

If you signed the note for the car then you are personally liable for making the payments on the car in the eyes of the car loan company. In order to avoid the liability for this you have to go back to court and enforce the hold harmless clause. The creditor's are not concerned with the divorce decree, it is only through going back to court that you can have your ex-spouse be held accountable for any liability that resulted from her failure to hold you harmless for the liability of the car. Through the courts you can seek an award of money against your ex-spouse for an loss that resulted from her failure to pay the vehicle.

Posted By: Norma Duenas | Jan 22, 2012 12:21am PST

Although attorney's fees awarded as part of a divorce or custody dispute from my perspective are not in the nature of support some courts have given "in the nature of support" a very broad definition and have included attorney's fees awarded as part of a custody dispute as being "in the nature of support" and therefore nondischargeable in a bankruptcy case. Whether you can discharge these attorney's fees as part of a bankruptcy court will really depend on how your state court characterizes these attorney's fees. If the family court defines these as being in the nature of support then it will not be discharged.

Posted By: Norma Duenas | Jan 21, 2012 11:51pm PST

My divorce says in short my ex-wife has to handle her car loan ( both of our names are on the loan ) and hold me harmless. The bank repo the car. The bank is suing me and only me. They told me they don't care about the decree, and now the shierff sent me a summons. I spoke with my ex-wife she is not planning on doing anything about it. I cannot pay my car and hers. What do i do?

Posted By: Courtney | Jan 18, 2012 10:37am PST

I am in the process of filing for bankruptcy Chapter 7, and not sure if I should file 13. Well, the reason for filing is that I have approximately 50K in debt and was unemployed for 2 years. I obtained a job as of the late fall, and feel like I need to just start over financially. My debts include credit cards, student loans(I know they are not dischargeable) loans, an interest payment owed to the state of MA of 5K, and one more interest debt of 2,000 for the IRS. The last debt I have pertains to my ex-wife that I have been officially divorced from since 2006. Since the original divorce I have filed motions regarding visitation and have won and back in May of 2011 I filed a contempt regarding the loss of several visits. Unfortunately I had written too much and her attorney filed for it to be dismissed/denied based on rule number 8; and she asked that I pay attorney’s fees to my ex-wife. The judge decided to deny the contempt and ruled in her favor regarding the attorney’s fees. I filed a 2-99 A and it was denied. So, may I include the attorney’s fees in to be discharged as the fees do not pertain to support, alimony, or property, nor do they belong to or divorce decree? If I file and they are not dischargeable will I receive additional time to pay the fees? I can not express how much I appreciate you taking the time to read this as do not know what to do and just want to make the best decision based on the situation; I do intend on hiring someone once I am informed. I look forward to hearing from you.

Posted By: AC | Jan 14, 2012 3:58pm PST

Try this one: My new wife was divorced and they divided their marital debt. Each agreed to refinance the debt into their own names. Debts included a vehicle for each of them, a student loan (consolidated, ugh), and three large credit card balances. She refinanced her car and a credit card as ordered and paid on the student loan. He did not and then filed for Chapter 13 bankruptcy. His truck and a $20,000 credit card balance all include her name on the loans. He was also to cover half of the expenses for their former home and take all action necessary to sell the house until it was sold. We are suing but I fear that in the end she will end up with 100% of the debts and all of the damage to her credit score while he pays nothing. He is employed and recently remarried as well. He could pay but the law allows him to slither out of responsibility while honest, hard working people pay their bills.

Posted By: Jason W | Nov 9, 2011 6:24am PST

My divorce was finalized in 2/2010. I have a hold harmless clause that states he is not responsible for the loan on my car or the mortgage payments (I have an equity line loan on the home as well) well when I calculate it all I am in Debt to the tune of 250,000 and the car is upside down as well as the home. I cannot sell the home due to the current housing market. I don't know if I am eligible to file for bankruptcy since my alimony is tied to the amt I pay for the mortgage. I am grossly unpaid - since I was a stay at home mom during my marriage. I work but have not even been able to get a $200 gas card in my name. What are my options? If I file for bankruptcy will they go after my x since his name is still listed on the loans? or will it just turn out that he is relieved of the debt because of the 'hold harmless" clause in my agreement? Please help.

Posted By: Kat | Aug 8, 2011 4:55pm PDT

The creditors will not be coming after you to collect on the debt that was in her name especially if the divorce is finalized. The credit card debt was solely in her name and although it was assigned to her to pay as part of the divorce, the failure to have it paid will not lead creditors to seek collection from you. This becomes more of an issue where the debt is also in your name and therefore the creditors can seek collection from you. Due to the bankruptcy the debt collectors for your ex-wife, will not be able to collect on the debt in her name, including the debt that was assigned to you.

Posted By: admin | Jul 30, 2011 10:07pm PDT

I had my divorce finalized on Jan. 19th 2011 but we had remaining credit card debt but all the credit cards were solely in her name. The judge ordered us to split the debt but a few weeks ago I recieved a letter in the mail informing me that she had filed chapter 7 bankruptcy what will this do to me?

Posted By: Jonathan | Jul 28, 2011 11:24am PDT

My ex-wife and I were divorced in Sept 2009.At the time her car was in her name with me listed as the cosigner. The divorce decree states that she was to refinance debt into her name and that i was to be held harmless of all liability, claims and expenses concerning the debt. Fast forward to 3/2011 and not only did she not refinance it but it go repossesed and I had to go to court and sign an agreement to pay montly the $9000 still owed. I was instructed by that judge to go to the county court where divorce took place and file contempt charges against her. I did this and have a court date of April 15th. Well today I get a notice that she is filing bankruptcy! Will this get her out of the debt and force me to pay it?

Posted By: Scott | Mar 24, 2011 12:13pm PDT

This will depend on whether this debt can be characterized as support or alimony. The divorce decree does not always makes this clear. If this debt is not for any child support or alimony then it may be dischargeable. Debts that you generally incur as part of a divorce or separation agreement are not dischargeable as part of a Chapter 7 bankruptcy, but can generally be discharged as part of Chapter 13 bankruptcy. Be aware that your ex-spouse may try to claim that this debt is for alimony or support payments, in order to avoid it being discharged as part of your bankruptcy case. You can read more information about this at: <a href="http://www.socaladvocates.com/blog/attorneys-fees-from-a-divorce/" rel="nofollow">Are Attorney's Fees from a Divorce Dischargeable?</a>

Posted By: admin | Jan 30, 2011 10:37pm PST

I was ordered to pay half of minor's council fees in Divorce court totaling $8,000. I have no money to pay this and the judge was advised of it. Can I discharge this in a bankruptcy? This was not for support but for obtaining half custody.

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